Your Rich Friends Could Be Making You Poor

When it comes to keeping up appearances, the biggest threat to creating lasting wealth is your rich friends. How is that possible? As a financial advisor who specializes in working with people who come into money quickly, I’ve seen the devastating effects of money + friends. Let me explain …

It’s been said that we are the average of the five people we’re closest to. If you’re down here financially and your friends are up there, you’re going to start to creep up to their level; I call this syndrome financial creep.

You may start to buy the same types of clothes, the same kind of car, the same vacations, etc. You may even consider moving to the same neighborhood they’re in. Your expenses will creep up to meet theirs. This is natural, normal and hardwired within us. We’re social creatures who are constantly looking at others and learning from them and modeling their behaviors. It’s in our DNA. It’s about evolution and natural selection. The people who were able to look at others and learn what worked from them were the ones who survived. You and I do it all the time.

Imagine that you’ve worked hard for many years with the goal of one day buying a Porsche 911. It’s been your dream car for as long as you can remember, and now you’ve finally saved enough to walk into the dealership with $100,000 and drive off in your brand-new Porsche. The windows are down, the radio is up and you’re cruising down the highway loving life. You feel so proud of this car that you couldn’t be happier.

Then you go visit a friend’s house and pull up in their driveway next to their fancier, faster and more expensive car. You get out of your Porsche, shut the door and in an instant “it” happens. You immediately get that feeling that your car’s not good enough anymore. This feeling happens all the time. It’s called relative deprivation; relative meaning in comparison to and deprivation meaning that we don’t think we’re getting what we deserve.

We’re constantly comparing ourselves to those in our immediate circle. We’re looking for areas where we’re not getting what we think is our fair share. When we see this happen, we either get upset or we do something about it. It’s a huge — and often hidden — threat to our finances.

We’re hardwired to spend more money than we have in order to look better. It’s a threat that we’re not even conscious about. Research has shown that most people care less about how much they make as long as they make more than the people around them. In a study researchers presented two scenarios and asked people which situation they’d prefer:

A: Your current yearly income is $50,000; others earn $25,000.B: Your current yearly income is $100,000; others earn $200,000.

The majority of the people answered A and agreed that they’d be happier making less money as long as they were making more money than their friends. This is an unconscious threat to your financial health that can undermine your decisions and wreak havoc on your finances.

When it comes to seeing how our unconscious desire to feel equal others affects spending habits, we need to stop trying to keep up with the Joneses. The next time you buy something really think about this. Ask yourself, why do I want this? What is it about it? Do I actually want it, or am I just buying it so I look better?